Employee engagement
Cassy Aite
January 17, 2020
15 min

The 2020 Ultimate Guide to Everything You Need to Know About Stipends

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The 2020 Ultimate Guide to Everything You Need to Know About Stipends

Cassy Aite
June 16, 2020
The 2020 Ultimate Guide to Everything You Need to Know About Stipends

Stipends are becoming increasingly common ways for organizations to support their employees, volunteers, trainees, apprentices, clergy, researchers, and interns. It has become especially popular among great companies using stipends in unique ways to reinforce culture, make their company more competitive, and to show people they care.

We’ve done our best to help Culture Builders (CEO’s, HR Leaders, Managers, and Team Members) identify how they can support their teams to be more productive by breaking down the barriers to understand what stipends are and how you can use them. In this post we’ve curated a ton of awesome information on stipends.

Bonus: We’ve included a 30 day free-trial for up to 100+ employees to use our Stipend Management Software Tool. Get started with Hoppier for free!

Disclaimer There are some grey areas in guidelines set by the IRS definitions so it is up to an employer to define what they consider a taxable benefit vs a non-taxable benefit. We always suggest consulting with your finance or accounting team or tax experts for formal guidance. However we want to be helpful so we put this info together from what we've learned from resources published by the IRS.

What is a Stipend? 

Stipend definition: A stipend is a fixed sum of money paid to an employee, trainee, intern, researcher, or graduate student to pay for fringe benefits or help offset expenses. A stipend is not the same as an income or salary because it does not represent pay for work performed and is at the discretion of the organization. A stipend can be thought of as an allowance, a bursary, or scholarship fund. An example of a stipend might include a company giving their employees a fixed amount of money each week to spend on their commute, a university giving a graduate researcher money to pay for rent, or a company giving employees a WFH budget to spend on their home office.

For example, the popular dating app Hinge has offered employees in its New York office a $200 monthly stipend to spend on dates. The company’s founder, Justin McLeod, said his favorite story of an employee using the benefit was a cat-themed date that one employee planned for their significant other. You'd finally be able to buy that extra bottle of wine without feeling guilty ;)

Who receives a Stipend?

Stipends have typically been given to people that are ineligible to receive a salary or wage for compensatory reasons such as a clergy, researcher, intern, or apprentice. However, in the last 20 years, more organizations are offering stipends as a complementary method of compensation. Stipends are an especially great way to keep remote employees motivated and happy!

employee happiness and engagement


How does a Stipend work?

The concepts behind a stipend are simple. An organization (usually someone from payroll or HR) must send money to the employee and may also decide what the stipend can be used for. The stipend is usually distributed to the recipients through their payroll system, funds transfer, or preferably through a Stipend Management Software Tool.


What can you use a Stipend On?

A stipend can be used on a variety of things. Organizations have the ability to define the stipend and how it can be used. Some examples and types of stipends include:

  • Employee fringe benefits such as commuting, lunches, home office expenses, and more.
  • Health insurance and wellness benefits for employees and their families.
  • Job Training, Apprenticeships, and Learning Budgets.
  • Internship housing stipends to cover the cost of living or moving to a new location.
  • Fellowship stipends for medical professionals (physician, dentist, nurses, or veterinarian) to cover costs of living over the course of their research or work contract.
  • Clergy stipends for religious leaders and leaders in training to cover the cost of their living expenses including food, rent, and more.
  • Research stipends or scholarships for students and researchers to cover the cost of their rent over the course of their academic program. This is mostly common for PhD students.
  • A Per Diem given to an employee that is travelling for work.
  • A cell phone stipend given to an employee that works in the sales department of the company.
  • A health insurance stipend given to employees that work in remote countries that are not covered by the employer’s traditional health and dental insurance benefits. 

It is common for companies to offer stipends that reinforce their culture.

For example, when the CEO of Molson Coors Brewing Co. noticed its beers were not on tap at all the pubs in Denver – the company’s founding HQ – the marketing team kicked off an internal program: Reclaim Colorado. Each employee was given a $35 monthly stipend to buy beer for others when they were out having drinks.


Are Stipends Taxable?

It depends. A stipend can count as taxable income so taxes may need to be paid at the end of the year based on your jurisdiction fringe benefits taxes and what the stipends are being used for. Although stipends are not typically counted as wages earned so no taxes get withheld.

If a company uses a Stipend Management Software then it is easier to manage the tax compliance aspect. Otherwise it is important to learn about Publication 15-B from the IRS to understand how an employer can navigate tax implications.


Are Stipends Legal?

If used properly in accordance with tax laws in your jurisdiction, then yes. Stipends have been criticized for several reasons such as a way to hire employees, junior teaching and research staff with lower compensation. It is important that organizations compensate fairly and a stipend is not used as a way to exempt a person partially or entirely from waged or salaried employment. 

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How Much Should a Stipend Be?

Stipends can vary from $20 a week for employees to commute to work, to $2,000 a month for academic researchers to cover rent, or $5,000 a year for employees to spend on home office expenses like computer monitors and ergonomic chairs. Often, organizations will measure the hypothetical productivity of a stipend for an employee. For example, if an employee with a salary of $60,000 a year can be more comfortable in their home office and 10% more productive ($60,000 x 10% = $6,000) then a $500 office chair is worth the investment. 

The amount of the stipend is at the discretion of the employer and they can offer several stipends depending on the needs of their team. 


Why should you offer employees stipends?

Stipends can increase productivity by boosting employee satisfaction and engagement. According to research, satisfied employees are between 12-22% more productive than those who are unhappy with their jobs, so investing more into your team can be a great way to improve your overall productivity. 

Boost employee productivity


Compensatory vs Non-Compensatory Stipends?

Compensatory and non-compensatory stipends are two common distinctions of stipends (used especially in academia). Not all educational institutions call them stipends but the fundamentals and mechanics of the payment is similar or the same.

A compensatory stipend is usually given in exchange for working in a supporting position; usually research or teaching. However, the relationship with the university usually defaults to 'student' rather than 'employee' and a student will not have full employment benefits (there are exceptions sometimes). This kind of stipend can be thought of as a sort of paycheque and it will be reported on a Form W-2 at tax time.

A non-compensatory stipend (or fellowship) is an award given to a student and there is seemingly no work requirement. However, the recipient will be expected to progress in their academic program, which almost always means doing research and sometimes means teaching or whatever else their program requires. The student is not in any way considered an employee in this scenario. This stipend will be reported on a 1099-MISC in box 3 or a 1098-T or not at all at tax time.

Stipends will typically increase as a student progresses through their academic program or employees progress through their careers. 

History of the Stipend and Stipend Meaning?

The word stipend comes from the early 15th century. It comes from Latin and was used to describe a soldier’s periodical pay. It is a portmanteau of the Latin words “stips” meaning “small payment” and “pendere” meaning “to pay”. Since the 15th century, stipends have become a popular way for organizations to motivate and support their workforce. 


Conclusion

Stipends don’t have to be complicated. Organizations around the world have been using stipends to offer fringe benefits, and other creative benefits programs for their teams. These stipends have become an amazing way to keep teams productive and motivated.

Both employees and employers can greatly benefit from using a stipend management software. On the one side, employees feel appreciated by being able to pick the perks they love and need. On the other side, management shows that they care about their staff and save a tremendous amount of time and tax money.

If that sounds interesting to you, you can book a demo call today with one of our friendly benefit experts.

What do you think? Have you implemented a stipend program within your organization? Have you seen success? Would you add an element to this guide? Share your thoughts to marketing@hoppier.com!

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